Meta Stock Soars on User Growth. Here’s What Wall Street Thinks.

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Meta’s earnings report doesn’t remove the significant challenges the company faces.

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Shares of Meta Platforms were rising sharply early Thursday after the parent company of Facebook posted better-than-expected user growth in the first quarter.

Meta (FB) gained 17.6% in premarket trading to $205.65 after the company reported Facebook daily active users of 1.96 billion, higher than analysts’ estimates and reversing a small decline in the December quarter.

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Net income in the first quarter was $2.72 a share, higher than forecasts of $2.56. Revenue rose 7% to $27.9 billion.

Sales in the current quarter ending in June will be $28 billion to $30 billion, falling short of the old Wall Street consensus forecast of $30.7 billion. Meta put part of the blame on the weaker revenue guidance to the war in Ukraine. It has lost subscribers in Russia, where service has been suspended.

Meta said that the outlook “reflects a continuation of the trends impacting revenue growth in the first quarter, including softness in the back half of the first quarter that coincided with the war in Ukraine.”

The company lowered its spending guidance for the year to $87 billion to$92 billion, down from its previous estimate of $90 billion to $95 billion.

Analysts at KeyBanc, led by Justin Patterson, pointed to the guidance on operating expenses in a research note early Thursday. KeyBanc also noted how CEO Mark Zuckerberg has his commitment to driving long-term profitability growth.

“We view the action and the statement together as a sign management is carefully weighing investment levels against the health of the business and macro,” the KeyBanc analysts said. They raised their earnings-per-share estimates for 2022 by 3%, citing “more expense discipline and buybacks.”

KeyBanc rates the stock at Overweight and maintained its price target on Meta at $280 following the earnings report.

RBC Capital Markets analyst Brad Erickson also noted how the planned cut in operating expenses was the driver behind the stock’s after-hours gains. RBC, which rates the stock at Outperform with a price target of $240, modestly lowered its estimates for revenue and Ebitda at Meta.

“FB’s unmatched scale and targeting vs. social peers remains a competitive advantage and keeps us at outperform but will need to show meaningful improvement to the various headwinds upcoming if the stock is going to work more sustainably,” Erickson wrote in a research note.

UBS raised its price target on Meta stock to $310 from $300, saying the second-half “bull case looks cleaner from here.” UBS reiterated its Buy rating on the shares.

Meta’s earnings report doesn’t remove the significant challenges the company faces, including impairment to its ability to target advertising due to Apple ‘s stricter approach to tracking consumer behavior on iPhones, and increasing competition from TikTok. The company also continues to invest heavily on the metaverse, and Zuckerberg admitted it will be years before that spending sees any meaningful returns.

David Trainer, chief executive of New Constructs, an investment research firm, said the “market is telling us that the metaverse business will not be as profitable as Facebook’s core advertising business.

“There’s risk that the Metaverse business leads to more than a 30% long-term decline in profits. There’s a chance it could do better. At this stage, it’s hard to tell,” he added.

Coming into Thursday’s trading, Meta stock has fallen 48% year to date.

Write to Joe Woelfel at [email protected]


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